Trial is Hewlett’s last chance to stop merger

Walter Hewlett will open the final round of his battle to stop Hewlett Packard Co.’s merger with Compaq Computer Corp. when the trial against the merger opens Tuesday in Delaware Chancery Court in Wilmington.

The legal action is also his last best hope.

Hewlett was dealt a loss last week when the preliminary results of the March 19 proxy election showed that HP had won shareholder support for the merger by 45 million votes out of the 1.6 billion cast.

That tally, if finalized, would mean the merger would go through, leaving Hewlett with only the trial to stop the corporate marriage that he thinks would be disastrous for the company his father co-founded and that HP management says is needed for the company to move forward and stay strong.

The only way that Hewlett can still stop the merger is to win in court , but many have begun to say they hope the matter is settled. Even the judge in the case, William B. Chandler III, has said Hewlett faces a tough battle to prove his case.

Hewlett filed suit against the merger in the Delaware court charging, among other things, that HP essentially bought the backing of Frankfurt-based Deutsche Bank AG, a charge both HP and the bank deny.

But as the trial opens, many analysts have suggested that Hewlett’s war against the merger is taking on a Quixotic air.

“I am sure (Scott) McNealy, among others, is very happy about this because it means two competitors are going to be focused inwardly,” Framingham, Mass.- based IDC analyst Dan Kusnetzky said.

Other analysts, even those who have opposed the merger, also wondered if the time has come for Hewlett to let this one go.

“To drag things through court for a deal that is probably going to go through anyway is probably not in anyone’s best interests,” said Brett Miller an analyst at St. Louis-based A.G. Edwards & Sons Inc.

Boston-based Summit Strategies Inc. analyst Laurie McCabe said that while she was initially against the merger, she now thinks the “soap opera” quality of the battle between HP and Hewlett and the lack of closure is damaging to both Compaq and HP.

In addition, HP now has both the Securityies and Exchange Commission and the U.S. Attorney’s office for the South District of New York looking into the merger. HP CEO and chairwoman Carly Fiorina has said that she welcomes the scrutiny and said the company is looking forward to clearing itself.

But McCabe said she also wonders if a loss by Hewlett in the three-day trial will actually end things..

“Things have gotten so drawn out and unpleasant,” McCabe said. “You wonder once the thing does go though will he still be chipping away?”

At least one HP employee got caught up in that unpleasantness and the fallout from the battle. Last week, Fiorina sent an email to employees saying that one of their own was fired for leaking materials to Hewlett to help him block the merger.

Hewlett’s lawyers tried to shield other documents and material from internal HP managers and lawyers going into the trial to prevent other firings. However, they were only able to keep those documents from HP’s management, the company’s internal lawyers will be able to see them. Those internal HP lawyers are bound from sharing that information with HP management by court rules.

But there are other long-term implications for the company as a whole, experts said.

Among them are a reorganization plan that calls for the layoff of up to 15,000 employees after the merger. Plus, management will have to prove the merger’s worth in a somewhat hostile climate.

McCabe said that the companies will have to merge in the glare of a bright spotlight and the honeymoon period that shareholders often give merging companies may not be non-existent this time.

Kusnetzky said middle managers may be emboldened to quietly work against the merger by questioning every detail to death. He said these people will never appear disloyal but they will be able to hold up every plan with committees, inquiries and the need for more study.

He added that people cannot just look at the merger as the marriage of two companies because there were the mergers Compaq has pulled off prior to this current deal.

“When you look closely at Compaq you see three animals fighting inside of that bag,” Kusnetzky said. “It is like three cats growling and hissing at each other and they (Compaq) never quite settled that. It is clear that you have Tandem folks, DEC folks and Compaq folks. Now you add HP to the mix and it may well be four cats fighting in the bag.”

The trial, scheduled to start at 9:30 a.m., is expected to last three days.

Would you recommend this article?


Thanks for taking the time to let us know what you think of this article!
We'd love to hear your opinion about this or any other story you read in our publication.

Jim Love, Chief Content Officer, IT World Canada

Featured Download

Featured Articles

Cybersecurity in 2024: Priorities and challenges for Canadian organizations 

By Derek Manky As predictions for 2024 point to the continued expansion...

Survey shows generative AI is a top priority for Canadian corporate leaders.

Leaders are devoting significant budget to generative AI for 2024 Canadian corporate...

Related Tech News

Tech Jobs

Our experienced team of journalists and bloggers bring you engaging in-depth interviews, videos and content targeted to IT professionals and line-of-business executives.

Tech Companies Hiring Right Now